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Bankers to Be Prohibited From Buying Stocks

Goldman Sachs Group Inc. (GS), the top adviser on corporate takeovers, is changing a policy addressing conflicts of interest to bar investment bankers from trading individual stocks and bonds, a person with direct knowledge of the matter said.
Employees at the New York-based firm were notified yesterday of the change, which takes effect immediately, said the person, who requested anonymity because the matter isn’t public. They also aren’t allowed to invest in activist or event-driven hedge funds, the person was quoted by Bloomberg as saying. Previously, bankers needed approval before they could invest in individual stocks.
The change came on the same day that a former Federal Reserve Bank of New York examiner’s recordings of her ex-colleagues’ dealings with Goldman Sachs were featured in reports by public radio and ProPublica. The former examiner, Carmen Segarra, sued the New York Fed last year, alleging that she was fired in 2012 because she refused to change her finding that Goldman Sachs didn’t have a conflict-of-interest policy. Her case was dismissed in April and she’s appealing.

Financial Safety
“The New York Fed works diligently to execute its supervisory authority in a manner that is most effective in promoting the safety and soundness of the financial institutions it is charged with supervising,” it said in a statement posted on its website.
U.S. Senator Elizabeth Warren, a Massachusetts Democrat, called for a congressional investigation into allegations that the New York Fed was too deferential to the institutions it regulated. Senator Sherrod Brown, an Ohio Democrat who’s also on the banking committee, backed Warren’s call for a probe.
In 2012, a Delaware judge rebuked Goldman Sachs over its “incomplete and inadequate” handling of a conflict of interest in pipeline operator Kinder Morgan Inc.’s $21.1 billion purchase of El Paso Corp., the investment bank’s biggest takeover assignment the previous year. Stephen D. Daniel, a former Goldman Sachs partner who was lead the banker on the deal, failed to disclose ownership of about $340,000 in Kinder Morgan stock, the judge said.

Protecting Reputation
Friday’s change had been discussed for months and tightens a policy that was adjusted after the Kinder Morgan deal, the person said. The move is intended to reduce potential conflicts with clients and protect the firm’s reputation, the person said.
The new restrictions at Goldman Sachs also will apply to some employees outside of investment banking, including those who could have access to confidential information as part of their roles, the person said. Spokesmen for Bank of America Corp., Citigroup Inc. and Morgan Stanley declined to comment on the policies at their companies. A spokesman for JPMorgan Chase & Co., the biggest U.S. bank by assets, didn’t respond to phone and e-mail messages sent after regular business hours.